OCA - Oceania Group - retirement villages

[Beagle]

Take an average priced unit Peat, lets call it $700K. 30% of that is $210K. I would suggest a typical restoration and refurbishment of the interior of a unit is a pretty small fraction of that figure but of course the real money is made from reselling that unit (they have reimbursed the estate for at $490K), at a significantly increased price to the new incoming resident.

[James108]

I believe, although could stand to be corrected as I haven’t looked into this for ages, but the gain on resale is net of refurb costs as well.

[Maverick]

nice post Mav

Just focusing on the DMF tho.
Are you assuming much benefit to the company from the DMF.
The DMF is a percentage of the original purchase price. hence by the time it is collected it is based on an out of date number .
On their website it is actually referred to as a Facilities Fee - correct? It is deferred but runs at 10% per year cumulating to a max of 30% after 3 years.


Isnt this allocated to maintenance of the dwelling though. In which case it is money in and money out unless the fee paid can buy more maintenance than is required. I guess at 30% (lets assume most stay that long) it will cover 3 years of maintenance easily enough. but say they live there 6 or 7 years, will there be any benefit from the payment as it is capped at 30% of the original price (now very outdated) and will most likely be fully spent on refurbishing the unit.

Hi Peat, good to get a gritty question from you to chew on especially on such a rainy day.

Winner and I went through your DMF /facility fee (same thing BTW) question about a year ago. We both viewed the DMF quite differently.
Winner originally saw it as you outline here, that it's a fee fully used up for the upkeep of the facilities.
I originally saw it quite differently, as mostly profit under a pretty label of “maintenance” in order to be more palatable to residents.

You decide for yourself how to see it after looking at the numbers from last FY. (Note I'm only using the “village” section of OCA and not including the “care” section DMF for simplicity.)
.................................................. .........................Fy 2020(a) .......FY2028(e)
Village DMF............................................... ................21.4m ............92m
Service fees (this is a weekly cash fee ) .......................6.0m ..............10m
Other income............................................ ................ 3.4m ..............4m
Total income............................................ ...............30.8m .............106m

Net village operating expenses...............................-15m...............-30m

Net Village profit............................................ .........15.8m..............74m

I have put in my own end of pipeline numbers (estimated 2028) to demonstrate how the growth of the DMF is one of the key drivers for OCAs profit expansion, especially important when the new sales margins dry up.

I think these numbers demonstrate that a large chunk of DMF is pure profit and not used for expenses. It also shows that the profit % of the DMF increases substantially as OCA converts more of its product to “high end” and then resells it under the DMF system.

Hope that's helpful Peat, did that answer your question?

[Beagle]

Hey Mav, I presume by end of pipeline in 2028 you mean the end of the foreseeable Greenfields and brownfields developments with existing land stock ?

There's no question in my mind the real tidal wave of demand for care suites comes as the baby boomers hit their mid 80's which means this company will have a huge and building demographic of demand growing for the next 25+ years. Plenty more land to be bought in the years ahead to continue building new facilities to meet such strong demand and with their excellent sector leading development margin I foresee this as being a superb long term hold well into the 2040's.

[winner69]

Hey Mav, I presume by end of pipeline in 2028 you mean the end of the foreseeable Greenfields and brownfields developments with existing land stock ?

There's no question in my mind the real tidal wave of demand for care suites comes as the baby boomers hit their mid 80's which means this company will have a huge and building demographic of demand growing for the next 25+ years. Plenty more land to be bought in the years ahead to continue building new facilities to meet such strong demand and with their excellent sector leading development margin I foresee this as being a superb long term hold well into the 2040's.

Thought you were saying share price of 2040

Probably will be that in 20 years ..... that’s only about 15% pa

What big ‘speed hump’ in those 20 years could happen for you to go into ‘capital preservation mode’

[peat]

Hi Peat, good to get a gritty question from you to chew on especially on such a rainy day.

Winner and I went through your DMF /facility fee (same thing BTW) question about a year ago. We both viewed the DMF quite differently.
Winner originally saw it as you outline here, that it's a fee fully used up for the upkeep of the facilities.
I originally saw it quite differently, as mostly profit under a pretty label of “maintenance” in order to be more palatable to residents.

You decide for yourself how to see it after looking at the numbers from last FY. (Note I'm only using the “village” section of OCA and not including the “care” section DMF for simplicity.)
.................................................. .........................Fy 2020(a) .......FY2028(e)
Village DMF............................................... ................21.4m ............92m
Service fees (this is a weekly cash fee ) .......................6.0m ..............10m
Other income............................................ ................ 3.4m ..............4m
Total income............................................ ...............30.8m .............106m

Net village operating expenses...............................-15m...............-30m

Net Village profit............................................ .........15.8m..............74m

I have put in my own end of pipeline numbers (estimated 2028) to demonstrate how the growth of the DMF is one of the key drivers for OCAs profit expansion, especially important when the new sales margins dry up.

I think these numbers demonstrate that a large chunk of DMF is pure profit and not used for expenses. It also shows that the profit % of the DMF increases substantially as OCA converts more of its product to “high end” and then resells it under the DMF system.

Hope that's helpful Peat, did that answer your question?

Cheers Mav, yeh its just horrible today , struggling to get over 10 degrees!

Your answer confirms that the DMF is worth investigating rigorously. It really boils down to the cost of refurbishments and certainly 210k (Beagles average DMF) seems a lot to restore a unit and no doubt will go a long way on 3 year stays but after a couple of say 7 year stays there will be roof replacement, full exterior painting - more costly requirements to restore the unit to something that can be sold for a premium price. While these may still come in under that 210k figure I wonder if sometimes a good substantial chunk of it may be required.

What really needs to be understood is the life long costs of maintaining a unit until it is rebuilt entirely. This will depend on the quality of the original construction I would imagine. I would expect these dwellings life expectancy to be less than a normal house due to the higher standards of modernity required by the (choosier) ongoing incumbents.

I have no idea how you model this but I guess it would need to incorporate an increasing rate of maintenance until an expiry date for the original construction ?

[Maverick]

Hey Mav, I presume by end of pipeline in 2028 you mean the end of the foreseeable Greenfields and brownfields developments with existing land stock ?

There's no question in my mind the real tidal wave of demand for care suites comes as the baby boomers hit their mid 80's which means this company will have a huge and building demographic of demand growing for the next 25+ years. Plenty more land to be bought in the years ahead to continue building new facilities to meet such strong demand and with their excellent sector leading development margin I foresee this as being a superb long term hold well into the 2040's.

Yes Beagle, that's exactly what I mean.

While it seems there is plenty of demand out there already for cares suites, their profitability is certainly good but it really pales in comparison to how much OCA will make by delivering high-end apartments in wealthy areas.(land freed up by building high density care suites off to the side) That's were the real coin is in my view.
I also see plenty of competition coming in from the other players, after all there is not really that much special about a care suite that others cant easily replicate.
So rather than them focusing on just building more care suits at the end of the current pipeline I see them as doing a RYM or SUM and heading over to Oz.

But that's all way down the track and they've got their hands full for now.

[peat]

Attachment 12070Its good to see the blue candle of Friday after the dangerous looking candle the day before. Winner wondered that ones name - I think it is pretty close to being a marubozu , though they stricly speaking should have no wicks at all.

https://hitandruncandlesticks.com/ma...stick-pattern/

And while it was a bit scary , a strong down day with high volume , putting it in context of the previous hammer made it less so. A trader may have even bought on that low looking for support at the 130 level at the lowest point with a stop close to that. Resistance in the early part of the graph has now become support....

[Maverick]

What really needs to be understood is the life long costs of maintaining a unit until it is rebuilt entirely. This will depend on the quality of the original construction I would imagine. I would expect these dwellings life expectancy to be less than a normal house due to the higher standards of modernity required by the (choosier) ongoing incumbents.

I have no idea how you model this but I guess it would need to incorporate an increasing rate of maintenance until an expiry date for the original construction ?

Was talking to Greg Tomlinson the other day (total name dropping there but its actually true), he commented that these facilities have always been up for a full overhaul every 50 years or so. And that's pretty well what OCA are currently doing by knocking down those older 70`s buildings.

As far as the lesser maintenance items goes , I do not think it would cost much to fill a few nail holes on a wall and blow a new coat of half Spanish white around every now and again. The big ticket items such as new roofs and exterior painting surely must be pretty cheap per unit divided by many years in between with the new high density design and modern materials.

Any damage caused by the resident throwing a TV set out a window etc is charged extra back to their estate so those costs are contained.

So I personally see the maintenance costs per unit reducing in the years to come as a combination of the above and also the efficiency of scale due to more high density dwellings sharing the overhead.

[peat]

So I personally see the maintenance costs per unit reducing in the years to come as a combination of the above and also the efficiency of scale due to more high density dwellings sharing the overhead.

Yes you are probably right, but maybe not , in which case it could be a point of over optimism in your thinking.
I dont really know , just asking and discussing ... good on you for answering ...